When a fixed asset is sold or scrapped, its original cost and the accumulated depreciation on it are both removed from the books, the sale proceeds are recorded, and the difference between the proceeds and the net book value is a profit or loss on disposal. FRS 102 paragraph 17.30 sets that calculation, and paragraph 17.28 says the gain goes to profit or loss but must not be shown as revenue.

When should the asset come off the books?

FRS 102 paragraph 17.27 requires an item of property, plant and equipment to be derecognised either on disposal or when no future economic benefits are expected from its use or disposal. The second limb covers assets that are scrapped, stolen or simply worn out and thrown away.

The date of a sale is the date the buyer obtains control of the asset, applying the revenue recognition rules in paragraphs 23.85 to 23.89 (paragraph 17.29). In most cases that is when the asset is handed over, not when the invoice is raised or the cash arrives. Depreciation is charged up to that date: paragraph 17.20 says depreciation ceases when the asset is derecognised, and does not cease merely because the asset is idle unless it is fully depreciated.

How is the profit or loss calculated?

Paragraph 17.30 defines the gain or loss as the difference between the net disposal proceeds, if any, and the carrying amount of the item. In bookkeeping terms:

  1. Carrying amount (net book value) = original cost less accumulated depreciation and any impairment, at the disposal date.
  2. Net disposal proceeds = sale price excluding VAT, less any direct costs of selling, such as auction fees.
  3. Profit or loss = net disposal proceeds less carrying amount.

A profit on disposal usually means depreciation was a little too high over the asset’s life, and a loss that it was too low. It is not trading income. Paragraph 17.28 requires the gain to be recognised in profit or loss but not classified as revenue, so it should be shown in other operating income or netted within the relevant expense line, never in turnover.

What are the double entries?

Most bookkeepers use a temporary disposal account, which collects everything about the asset and leaves the profit or loss as its balance.

Step Debit Credit
1. Charge depreciation up to the disposal date Depreciation expense Accumulated depreciation
2. Transfer the original cost Disposal account Fixed asset cost
3. Transfer the accumulated depreciation Accumulated depreciation Disposal account
4. Record the proceeds Bank or debtor (gross) Disposal account (net) and VAT output tax
5. Clear the balance Disposal account (if profit) Profit on disposal (if profit)

If step 5 shows a debit balance on the disposal account, the entry reverses: debit loss on disposal, credit disposal account. Afterwards the cost and accumulated depreciation ledgers should agree with the fixed asset register (see general ledger and subsidiary ledgers), and the disposal account should be nil. For the general mechanics of journals, see journal entries explained.

What does a sale look like in practice?

Illustration only. A VAT registered business bought a van for £20,000 excluding VAT. By the date of sale it has accumulated depreciation of £12,000, so the net book value is £8,000. It sells the van for £9,000 plus VAT at the standard rate of 20%, so the buyer pays £10,800.

Account Debit Credit
Disposal account £20,000
Van cost £20,000
Van accumulated depreciation £12,000
Disposal account £12,000
Bank £10,800
Disposal account £9,000
VAT output tax £1,800
Disposal account £1,000
Profit on disposal £1,000

The disposal account now nets to nil: debits of £21,000 against credits of £21,000. The profit of £1,000 is the £9,000 proceeds less the £8,000 net book value.

How is a part exchange recorded?

When an old asset is traded in against a new one, the trade in allowance is the disposal proceeds of the old asset. VAT Notice 700 paragraph 8.7 explains that where goods are received in part payment, two separate supplies take place, one in each direction. So the bookkeeping has two halves:

  • the new asset is capitalised at its full price (debit cost, debit VAT input tax, credit supplier);
  • the old asset goes through the disposal account, with the trade in value credited to the disposal account and debited to the supplier’s account instead of to the bank.

The supplier’s account is then cleared by the balance paid in cash or financed. A common error is to capitalise only the net cash paid, which understates the new asset’s cost and hides the disposal.

What if the asset is scrapped, lost or written off?

With no proceeds, the loss on disposal equals the whole net book value. The entries are steps 2, 3 and 5 above. If insurance will pay out, FRS 102 paragraph 17.25 says compensation from third parties for items that were impaired, lost or given up is included in profit or loss only when it is virtually certain. Until then, the write off and the claim are kept separate. An asset still on site but idle is not a disposal; it stays on the books and continues to be depreciated unless fully depreciated (paragraph 17.20).

If the asset was carried at a revalued amount, the revaluation reserve also needs dealing with; see revaluation of fixed assets.

How is a disposal treated for VAT and tax?

VAT. VAT Notice 700 paragraph 9.1 says that selling, giving away or taking into private use goods that form part of the business’s assets is normally a supply, and where it is taxable VAT must be accounted for on the disposal. Special rules apply to the sale of a business as a going concern, and some items, such as cars where input tax was blocked, have their own rules covered in VAT on cars, vans and fuel.

Income tax and corporation tax. The accounting profit or loss on disposal does not count for tax. BIM35030 confirms capital receipts are not taxable as trade profits, just as depreciation is not deductible, so the profit or loss is reversed in the tax computation. Instead, for plant and machinery, the business brings a disposal value into its capital allowances. GOV.UK guidance on selling assets says the value is usually the sale price, or market value for gifts and some other cases, and you can only deduct up to the original cost even if you sell for more. If the asset had full relief through the annual investment allowance and there is nothing left in the relevant pool, the disposal value becomes a balancing charge added to profits. See capital allowances explained for how the pools work.

Buildings and other chargeable assets can also produce a chargeable gain. For a company that gain is part of its corporation tax profits; for an individual it falls under capital gains tax.

What mistakes come up most often?

  • Posting the proceeds to sales. This overstates turnover and breaches paragraph 17.28.
  • Deleting the asset from the register without journals, leaving cost and depreciation in the ledger for an asset the business no longer has.
  • Removing the cost but not the accumulated depreciation, which leaves a credit balance with no asset behind it.
  • Recording the proceeds gross of VAT in the disposal account, overstating the profit by the VAT.
  • Forgetting depreciation for the part of the year before disposal, which shifts the charge into the profit or loss on disposal.
  • Treating the accounting profit as taxable instead of replacing it with the capital allowances disposal value.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.